(Updates with StubHub’s comment in eighth paragraph.)
Oct. 6 (Bloomberg) -- StubHub Inc., the online ticket reselling unit of EBay Inc., isn’t required to collect a Chicago amusement tax, the Illinois Supreme Court said.
Chicago, the third-largest city in the U.S., sued StubHub in 2008, claiming it had sold tickets for thousands of events in the city since 2000 without collecting and remitting the tax. A federal trial court dismissed of the case, and Chicago challenged that ruling.
A Chicago-based U.S. appellate panel asked the state Supreme Court whether a municipality could require an Internet intermediary to act as its taxing agent.
While the state’s highest court agreed that San Francisco- based StubHub is a ticket reseller’s agent as defined by Chicago law, the seven-judge panel unanimously decided that only the state, not its municipalities, can impose a taxing obligation on online auctioneers.
“The city has overstepped its home rule authority,” the court said today.
StubHub bills itself as the world’s largest ticket market. Its website lists as partners the New York Yankees, the University of Texas and more than 60 major teams in baseball, basketball, hockey and pro and college football. EBay, based in San Jose, California, bought StubHub for $310 million in 2007.
Registered with Illinois as an Internet Auction Listings Service, StubHub is in compliance with state laws exempting it from collecting taxes on tickets resold by third parties through its website, according to today’s decision.
“We are pleased with the court’s ruling,” Lance Lanciault, head of legal affairs for StubHub, said in an e- mailed statement. “The court recognized that there still exists a viable mechanism for Illinois municipalities to collect taxes from ticket resellers.”
StubHub charges ticket buyers 10 percent of the purchase price and sellers a 15 percent fee, the court said. It also informs sellers of their tax obligations.
The city, which adopted its conflicting ordinance in 2006, had sought a court order compelling StubHub to submit to an audit and to pay a judgment in the amount of the municipality’s claimed tax revenue, plus interest and penalties.
Roderick Drew, a spokesman for Chicago’s law department, called the supreme court opinion “unfair” and said it deprives the city of revenue.
“For decades, amusement taxes have been a mainstay of local government funding,” Drew said. “Patrons buying tickets from online resellers such as StubHub, unlike patrons who purchase their tickets directly from the venue, will not pay the amusement tax on the full value of their ticket.”
The case is City of Chicago v. StubHub Inc., Illinois Supreme Court, 2011 IL 111127. The federal appeal is City of Chicago, Illinois v. StubHub! Inc., 09-3432, U.S. 7th Circuit Court of Appeals (Chicago).
--Editors: Mary Romano, Andrew Dunn
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